[NTRC Tax Research Journal Vol. XXVINA July-August 2016 Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases * L ‘TRODUCTION With the clamor from various sectors including the lawmakers to bring down the corporate and personal income taxes, the government has to look for alternative sources to recoup the projected loss in revenues. The feasibility of relaxing the bank secrecy and allowing the Bureau of Intemal Revenue (BIR) access to bank records of individuals for tax fraud cases and including tax evasion as a predicate crime to money laundering are two of the options being considered, This paper discusses the bank secrecy law, and other relevant laws in the Philippines and other selected countries. It provides valuable information on the perceived benefits of the proposals and the need for them to be given utmost priority in order to prevent domestic and offshore tax evasion and consequently increase tax collection, II. BANK SECRECY AND OTHER RELEVANT LAWS IN THE PHILIPPINES Bank secrecy! (or bank privacy) is a legal principle in some jurisdictions under which banks are not allowed to provide the authorities personal and account information of their customers unless certain conditions apply. In all countries in the world, only three, namely the Philippines, Lebanon and Switzerland still have restrictive banking laws making it hard for the government to go after tax evaders and money launderers. However, the Swiss government is trying to open up to join the rest of the world in lifting bank secrecy laws. The Philippines, along with Lebanon, are the only countries in the world where tax evasion is not a predicate crime to money laundering. The Philippines is the only country in the Asia- Pacific region with highly restrictive law that explicitly prohibits the Anti-Money Laundering Council (AMLC) from sharing data with the BIR. * Prepared by Ronnel L. Yambao, Tax Specialist Il, reviewed and approved by Nedinia B. Mendiola, OIC, Planning and Coordinating Branch, NTRC. " hutps://en.wikipedia,org/wiki/Bank_secrecy (viewed September 14, 2015). Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases 1NTRC Tax Research Journal Vol. XXVIIL4 Tuly-August_2016 The Bank Secrecy Law in the Philippines was put in place in 1955 pursuant to Republic Act (RA) No. 1405*, It provides for a confidentiality rule for all types of bank deposits except upon written permission of the depositor, in case of impeachment, upon order of the court in cases of bribery or dereliction of duty of public official or where the deposit is the subject of litigation. The law aimed to encourage people to deposit their money in banking institutions and to discourage private hoarding so that money may be properly utilized by the banks by way of authorized loans to assist in the economic development of the country. In 1981, said law was amended by Presidential Decree (PD) No. 17928 to allow examination of bank records when authorized by the Monetary Board or when the examination is made by an independent auditor hired by the bank itself for audit purposes only. Section 2 of RA 1405 as amended by PD 1792, reads as follows: “All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except when the examination is made in the course of a special or general examination of a bank and is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity, or when the examination is made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank, or upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.” Section 3 of RA 1405 as amended by PD 1792 also provides that it shall be unlawful for any official or employee of a bank, or for an independent auditor hired by a bank to conduct its regular audit, to disclose to any person other than a bank director, official or employee authorized by the bank, any information regarding deposits. * An Act Prohibiting Disclosure of or Inquiry Into, Deposits with Any Banking Institution and Providing Penalty Therefor (Approved, September 9, 1955). * Amending RA 1405 (Approved, January 16, 1981). 2 Lifting of the Philippine Bank Secrecy Law for Tax Fraud CasesNTRC Tax Research Journal Vol. XXVIII4 July-August 2016 With regards to foreign currency deposits, RA 6426" was approved in 1972 wherein the secrecy of said deposits is likewise governed in accordance with the provisions of RA 1405. In 1976, RA 6426 was amended by PD 1035° and further amended by PD 1246° which states that: “All foreign currency deposits authorized under this Act, as amended by PD 1035 as well as foreign currency deposits authorized under PD 1034”, are hereby declared as and considered an absolutely confidential nature and, except upon the written permission of the depositors, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or private: Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.” On the other hand, notwithstanding the provisions of RA 1405, as amended and RA 6426, as amended, RA 9160* otherwise known as the “Anti-Money Laundering Act of 2001” as amended by RA 9194” created the AMLC and authorized the same to inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of said law, when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity or a money-laundering offense. Unlawful activity under the law refers to any act or omission or series or combination thereof involving or having relation to the following Kidnapping for ransom; Comprehensive dangerous drugs; Graft and corrupt practices; Plunder; aege “ An Act Instituting a Foreign Currency Deposit System in the Philippines, and for Other Purposes (Approved, April 4, 1972) 5 Expanding the Authority of Certain Depository Banks under RA 6426 and for Other Purposes (Approved, September 30, 1976) ° Further Amending Certain Provisions of RA 6426, as amended by PD 1035. (Approved, November 21, 1977) 7 Authorizing the Establishment of an Offshore Banking System in the Philippines (Approved, September 30, 1976) * An Act Defining the Crime of Money Laundering, Providing Penalties Therefor and For Other Purposes (Approved, September 29, 2001) ° An Act Amending RA 9160, Otherwise Known as the Anti-Money Laundering Act of 2001 (Approved, March 7, 2003) Lifting of the Philippine Bank Secrecy Law for Tax Fraud CasesNTRC Tax Research Journal Vol. XXVIIL4 July-August 2016 Robbery and extortion; Jueteng and masiao pur Piracy on the high seas; Qualified theft; Swindling; Smuggling; Violations under RA 8792, otherwise known as the Electronic Commerce Act of 2000; 1. Hijacking; destructive arson and murder, including those perpetrated by terrorists against non-combatant persons and similar targets; m, Fraudulent practices and other violations under RA 8799, otherwise known as the Securities Regulation Code of 2000; and n, Felonies or offenses of a similar nature that are punishable under the penal laws of other countries. ed as illegal gambling; rorre In the area of taxation, under Section 6(F) of the National Internal Revenue Code (NIRC) of 1997, as amended by RA 10021'°, the Commissioner of Internal Revenue (CIR) has the authority to inquire into the bank deposits and other related information held by the financial institutions of. a, A decedent to determine his gross estate; b. Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2) of the Code by reason of financial incapacity to pay his tax liability; In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and until he waives in writing his privilege under RA 1405, RA 6426, or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer; and c. A specific taxpayer subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of: Provided, that the information obtained from the banks and other financial institutions may be used by the BIR for tax assessment, verification, audit and enforcement purposes. "° An Act to Allow the Exchange of Information by the Bureau of Internal Revenue of Tax Matters Pursuant to Internationally-Agreed Tax Standards, Amending 6(F), 71 and 270 of the National Internal Revenue Code of 1997, as Amended, and for Other Purposes (July 27, 2009), Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases[ITRCTTax Research Joural Vol XXVIIA Tuly-August 2016 Ill. BANK SECRECY LAWS IN OTHER COUNTRIES A. Switzerland The Swiss Federal Act on Banks and Savings Bank, also known as the Banking Law of 1934, is the law that governs the regulation of banks in Switzerland wherein privacy is statutorily enforced. Said law strictly limits any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge’s subpoena in cases of severe criminal acts, such as identifying a terrorist’s bank account or tax fraud''. The law was a direct response to the rise of Hitler and the threat of war. Down through history, whenever a major war or other calamity has threatened, ever-greater hoards of foreign cash have flowed into Swiss bank accounts because the world knew Switzerland traditionally stands for safety. However, with international standards taking on an increasingly important role with regard to disclosure of banks of client information to tax authorities since 2009, administrative assistance in the case of tax evasion has been part of Swiss double- taxation agreements in accordance with the Organization for Economic Co-operation and Development (OECD) standard. Further to this, in October 2013 the Swiss government resolved to sign the Council of Europe and OECD's convention on administrative assistance in tax matters that will align Swiss bank practices with those of other countries and in effect end the special secrecy that clients of Swiss banks had enjoyed in the past.'? B. Lebanon Lebanese Banking Secrecy Law of 1956 provides inhibition from disclosing an information about the bank’s client names, funds, or personal matters to any party, be it an individual or a public authority, whether administrative, military or judicial, except when authorized in writing by the concerned client, his/her heirs or legates, or in case the client is declared bankrupt, or there is a lawsuit involving banks and their clients over banking operations. While Lebanon has retained its banking secrecy laws, it however, adopts measures to fight money laundering. '° On April 20, 2001, Law No. 318 was enacted by Lebanese Parliament which criminalizes money laundering, promotes the efficient combating of such activities, and facilitates cooperation with the international community. ‘The law established the Lebanese Financial Investigation Administrative Unit which operates as a Financial Intelligence Unit (FIU) in conformity with the practices of the Egmont Group. The Egmont group was established for the purpose of creating a forum wherein FIUs across the world could exchange information, expertise, and training. Lebanese FIU functions as the competent authority and the official center for monitoring, collecting and "" https:/ien.wikipedia.org/wiki/Bank_secrecy (viewed, October 12, 2015) ® hepa 7 "© www-financialsecrecyindex.com/PDF/Lebanon pdf (viewed, October 2015) Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases 3NTRC Tax Research Journal ‘Vol. XXVIII4 July-August 2016 archiving information on money laundering offenses and in exchanging said information with its foreign counterpart members of the Egmont Group, thereby maintaining transparency with other FIU members in the effort to strengthen cross- border cooperation and information exchange." In 2011, the Lebanon Central Bank issued Banque Du Liban (BDL) Intermediate Circulars 273 and 274 and set out provisions imposing greater restrictions on financial intermediation entities that engage in the cross border movement of funds and currency and to ensure highest levels of compliance with anti-money laundering rules, In March 2012, the Lebanese government approved three (3) important draft laws and submitted them to the Parliament which seek to amend its anti-money laundering statute, Law 318 of 2001, and to implement more rigorous standards for cross-border transport of cash and the exchange of tax information. The government also approved and sent to the Parliament a law that would grant Lebanon the legal basis to regulate the exchange of information related to tax evasion and fraud, and to abide by the norms established by the OECD and adopted by G20 countries." c ingapore Singapore has bank secrecy provisions comparable to those in Switzerland. A London-based research firm recently estimated that Singapore could surpass Switzerland in the world’s largest offshore center by 2020. It projected that Swiss offshore assets could fall below $2 trillion by 2016, while Singapore’s asset could more than quadruple by then. Half of Singapore's offshore wealth is currently coming from China. New regulations for private banks in Singapore, however, could threaten the city states’ status as an offshore financial hub and hurt its competitiveness against other offshore havens such as Hongkong or Dubai. Starting July 1, 2014, any bank in Singapore suspected of facilitating tax evasion or having inadequate controls will be punished with fines, criminal cases and possible loss of license to operate in Singapore.'® It agrees to automatically share bank data with other jurisdictions preventing offshore tax evasion. On December 9, 2014, Singapore signed a Model 1 Intergovernmental Agreements (IGA) on tax information sharing with the United States (US) to help ease compliance of Singapore-based financial institutions (FIs) with Foreign Account Tax Compliance Act (FATCA). The Model 1 IGA establishes a framework for Singaporean Fls to report account information of US persons to the Inland Revenue Authority of ™ www abl.org.b/library/files/abI%4202013%20Ibs.pdf (viewed, November 3, 2015) Ibid, ‘© https://euobserver.com/economic/123557 G Lihing of the Philippine Bank Secrecy Law for Tax Fraud CasesNTRC Tax Research Journal Vol. XXVIIL4 July-August 2016 Singapore, which will in turn provide information to the US Internal Revenue Service caRs).”” United States of America ‘The United States’ Bank Secrecy Act of 1970 (BSA) requires financial institutions (Fs) to assist government agencies to detect and prevent money laundering. Specifically, the Act requires Fls to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activities that might signify money laundering, tax evasion or other criminal activities.'* On the other hand, the FATCA enacted in 2010 is a US Federal Law which requires US persons (including those living outside the US) to have a yearly report of their non-US financial accounts to the Financial Crimes Enforcement Network (FINCEN), and requires all non-US Foreign Financial Institutions (FFIs) to search their records for suspected US persons and report their assets and identities to the US Treasury. The FATCA data is used to cross-check a US person’s self-reported data. Under FATCA, Fis would report the information they gather to the US IRS. As implemented by the IGAs in many countries, each FI will send the US person’s data to the local government first. For example, according to Ukraine’s IGA, the US person data will be sent to the US via the Ukraine government, In a non-IGA country, such as North Korea, the North Korean bank will store the US person data and will send it directly to the IRS. To date, the FATCA information sharing regime has grown to include at least 73 countries that have formally signed an IGA with the US, 39 countries have reached agreements in substance to sign the IGA, and several others are still under discussion.” On July 13, 2015, the Philippines signed a reciprocal IGA with the US to implement the provisions of the FATCA. For this purpose, there are more than 230 Philippine Fis that have registered and have been assigned Global Intermediary Identification Number (GIINs) by the IRS and the number is still expected to grow. These include banks, insurance companies, investment houses, stock brokers, mutual funds, asset management and leasing companies and holding companies. ‘The Philippines and the US also have an existing double taxation treaty which outlines the basis for the exchange of financial information between the IRS and the BIR. The new IGA therefore enhances the effectiveness of this framework.” hutps://www.iras.gov.sg/irashome/Quick-Links/International-Tax/International-Tax-Compliance- Agreements! (viewed, November 3, 2015). ° hups:/wwwfincen gov/statutes_regs/bsa/ (viewed, September 2015). ° www treasury.gov/,,/FATCA-Agreement-Philippines-7-13-2015.pdt » Ibid Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases 7NTRC Tax Research Journal Vol. XXVIIL4 July-August 2016 The Philippines has negotiated a Model 1 IGA with the US under which Philippine Fis will report information on US accounts to the BIR. The Philippines Model 1 IGA with the US consists of three (3) parts namely, the main agreement and supporting annexes, i.e. Annex I and Annex I. The main agreement deals with the information exchange process between the IRS and the BIR, and details the specific information on US persons, including controlling persons of passive non-financial foreign entities, and/or recalcitrant account holders, to be obtained and exchanged by Philippine FIs on annual basis starting 2014, In Annex I of the IGA, Philippine Fls need to perform with due diligence the procedures for new and pre-existing individual and entity account holders with balances exceeding $50,000 and $250,000, respectively, as of November 30, 2014. These procedures include the electronic searching of US indicia, obtaining self- certifications and other documentary evidence and performing enhanced review procedures in the case of accounts with balances that exceed $1,000,000 as of the determined date. In Annex II, certain Philippine Fls can be treated as deemed-compliant FFls and are exempt from reporting. These include Fls that have a local base with 98% of their accounts held by Philippine individuals and/or entities. Likewise, certain local banks and Fls with only low-value accounts are exempted.”" ‘The main agreement makes it clear that although the IGA has been signed, it is a part of a longer negotiation process. The IGA shall enter into force on the date of the Philippines’ written notification to the US that the country has completed its necessary internal procedures for implementation. This includes being satisfied that the US has established safeguards and infrastructures on information that will be exchanged. The agreement can also be amended any time before December 31, 2016.7 E. OECD Initiatives on Tax Transparency The Global Forum on Transparency and Exchange of Information for Tax Purposes consists of OECD countries and jurisdictions that agreed to implement tax related transparency and information exchange. It was founded in 2000 and was restructured in September 2009 to include non-OECD economies. It addresses tax evasion, tax havens, offshore financial centres, tax information exchange agreements, double taxation and money laundering. The forum works under the auspices of the OECD and G20. In 2000, it published a blacklist of 35 tax havens, but by 2009 the list had shrunk to zeto. It has since focused on increasing the standard for information exchange. The Forum promotes the implementation of two (2) internationally agreed standards on exchange of information for tax purposes: 8 Lifting of the Philippine Bank Secrecy Law for Tax Fraud CasesNTRC Tax Research Jounal Vol. XXVIII4 July-August 2016 a. Exchange of Information on Request (EOIR) wherein members must only commit to implement information exchange on request; and b. Automatic Exchange of Information (AEOI). It uses Peer Review to monitor that the exchange of information on request is implemented. As a prerequisite, countries have to pass relevant laws, which are then to be reviewed (Phase 1). In Phase 2, the degree of implementation is graded into four (4) categories from A to D. Since 2009, it has divided tax havens into a “blacklist” of non- ‘committers and a “graylist” of non-implementers of the request-based internationally agreed standard”. Exchange of information (EOI), as a key element of international cooperation, is a new paradigm in applying and enforcing Philippine tax laws and fighting tax evasion. The main instruments of the Philippines for exchanging of information are its double taxation agreements (DTAs). As of August 2013, the Philippines has 38 effective DTAs which all provide for EOI. The terms of the Philippine DTAs generally allow foreign competent authorities to request the BIR to obtain and provide information that is necessary to carry out the provisions of the Convention or their domestic laws. Likewise, the BIR is allowed to request information from foreign authorities.* In May 2010, aside from the DTAs, the Philippines enacted a domestic law to align its legal framework with international standards. The passage of RA 10021 (Exchange of Information on Tax Matters Act of 2009) effectively removed legal barriers to exchange bank information with Philippine treaty partners.°> Further, in order to most effectively tackle tax evasion and adopt an approach towards greater transparency, a single global Automatic Exchange of Information (AEOI) standard for financial account information has been created: the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The Standard requires financial institutions to report account information held by non-resident individuals and entities including balances, interest, dividends, and sales proceeds from financial assets, trusts and foundations to tax administration. The tax administration then securely transmits the information to the account holders’ countries of residence on an annual basis.”° > hutp:/www.oecd.org/taw/transparency/about-the-global-forum/ % Facilitating Exchange of Information (EOI) to Prevent Offshore Tax Evasion by Atty. Charadine S. Bandon, OIC-Chief, International Tax Affairs Division, BIR, published at NTRC Tax Research Journal Ganuary-February 2015 Issue) * Ibid 2 http://www oeed.org/tax/transparency /automaticexchangeofinformation.htm (viewed, December 1 2015), Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases 9NIRC Tax Research Journal Vol. XXVIIL4 July-August _2016 ‘The Standard sets the financial account information to be exchanged, the financial institutions that need to report, and the different types of accounts and taxpayers covered. In order to ensure that the information is accurate and complete, the Standard also specifies the information gathering procedures to be followed by financial institutions, and draw on the existing international anti-money laundering standards.2” In 2009, the Philippines joined the rest of the international community in adopting the international standard on EOI and tax transparency. Over the last three (3) years, it has translated its political commitment into action by: (a) amending its laws to allow access to bank information for exchange purposes; (b) setting-up a dedicated EOT unit; (c) defining EOI processes through regulations that provide clear timeframes to process incoming and outgoing requests; (d) providing technical and financial resources for EOI operations; (e) introducing an EOI Work Manual: (f) training EOI personnel to handle requests more effectively; and (g) training the first batch of tax auditors to use EOI so that the Philippines not only receives requests but makes use of them as well.” In November 2013, the Philippines completed its Phase 2 review at the Global Forum on Transparency and Exchange of Information for Tax Purposes and received a largely compliant rating. At the 7 Meeting of the Global Forum in October 2014 held in Berlin, the Philippines made a political commitment to implement the common reporting standard (CRS). While the Philippines faces several constraints in implementing the CRS, it recognizes that declaring support to the new global standard is part of its responsibility in the intemational economy. By taking the step of making a political commitment to implement CRS, it is optimistic that its participation in the new global standard will provide the BIR various opportunities to detect tax evasion, improve voluntary compliance, and increase tax revenues. Since the CRS involves exchanging information on depository accounts, Philippine domestic laws need to be amended to compel all banks to collect information required by the CRS from account holders; to allow banks to transmit information to the BIR; to enable the BIR to exchange information with treaty partners; and to ensure that data confidentiality is maintained in the process.” IV. COMMENTS AND OBSERVATIONS, The BIR is mandated to assess and collect all national internal revenue taxes, fees and charges and enforce all forfeitures, penalties and fines. Given that its authority to inquire into * Ibid. 28 SGATAR 2014 Meeting ~ Opportunities for Cross- Jurisdictional Automatic Information Exchange and Analysis, > Ibid 10 Lifting of the Philippine Bank Secrecy Law for Tax Fraud CasesNTRC Tax Research Journal Vol. XXVII4 July-August 2016 bank deposit accounts is limited to decedents to determine their gross estate, taxpayers who have filed application for compromise of their taxes due to financial incapacity and to taxpayers who are subject of exchange of information on request, the BIR cannot use bank account information to the full extent. The lack of access to information on bank accounts for tax purposes has led to inaccurate tax assessments, weak evidence in tax evasion prosecution, and inability of tax authority to determine the true tax liability of taxpayers.*° Exchange of information, as a key element of international cooperation, is a new paradigm in applying and enforcing Philippine tax laws and fighting tax evasion. The EO has been used as a mechanism to support the filing of tax evasion cases under the “Run After Tax Evasion (RATE)” Program of the BIR. The RATE Program intensified the audit investigation and prosecution of cases against individuals and/or entities engaged in tax evasion and other criminal violation of the Philippines Tax Code. The use of EOI was a breakthrough for the RATE Program. The BIR recognizes that EOI complements the RATE Program and thus aims to promote its further use among criminal investigators. The BIR also sees the potential of EO! in transfer pricing examinations, in improving compliance and raising revenues*!. As such, the BIR under the past administration stressed the need to lift the bank secrecy law for tax purposes to bring the Philippines in line with countries establishing a single and consistent global standard in tracking tax fraud. Easing of bank secrecy rules for tax purposes would allow the BIR to assess tax liabilities and properly enforce administrative and judicial remedies and ensure satisfaction of judgment. It would also increase taxpayer compliance as it would be a global defense against tax evasion, If implemented, the Philippines can have access to financial information of Filipino citizens and entities abroad for tax purposes. Also, the Philippines is obligated by international agreements it has entered into. Legal and operational frameworks which are critical to the full implementation of the Exchange of Information must be put in place. If the Philippines cannot meet the requirements, it may be put back in the blacklist for non-compliance on the agreed standards and/or sanctioned e.g. imposition of withholding tax on cross-border payments; repeal ot revocation of bilateral tax treaties; embargo or cancellation of free trade agreements; and reduction of foreign aid and withdrawal of financing from international financial institutions, Existing bank secrecy laws make it tough for the BIR to go after tax evaders and money launderers and would often involve court intervention, an additional process that would cause the government to expend more resources without a clear retum of investment. Allowing the BIR access to a taxpayer's bank account information enhances tax administration and enforcement. The BIR has filed 394 tax cases since 2010 with a total tax liability of PhP71.8 billion. > BIR Comments on Senate Resolution No. 1574 Facilitating Exchange of Information (EOI) to Prevent Offshore Tax Evasion by Atty. Charadine S. Bandon, OIC-Chief, International Tax Affairs Division, BIR, published at NTRC Tax Research Jounal (January-February 2015 Issue) ** BIR Comments on Senate Resolution 1574 Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases 0NTRC Tax Research Journal Vol. XXVIIL4 July-August 2016 In the impeachment case against Chief Justice (CJ) Renato Corona in 2012, the Senate issued a subpoena on CJ Corona’s bank records ordering the bank managers of Philippine Savings Bank (PSBank)-Katipunan Branch and Bank of the Philippine Islands (BPI)-Ayala Branch to testify. The PSBank, however, petitioned the Supreme Court to prevent them from testifying as it is against the existing law to publicize FCDAs. The Senate denied the motions to defer the subpoenas to PSBank and BPI. During the presentation of the PSBank, it only brought the peso accounts of CJ Corona arguing that disclosing any dollar accounts will expose them to criminal liability. Likewise, the BPI submitted evidence to the Senate pertaining to CJ Corona’s peso bank records. The Senate voted to accept peso bank records as evidence in the trials. In early February 2016, hackers attempted to steal $951 million from the Bank of Bangladesh’s account through the Federal Reserve Bank of New York. Transactions worth $851 million were prevented by the banking system but $20 million were transferred to Sri Lanka but was later recovered, and $81 million to the Philippines. ‘The money transferred to the Philippines made its way into phony accounts at the Rizal Commercial Banking Corporation (RCBC). Remittance company, PhilRem Service Corporation converted the funds to Philippine pesos and these reached casinos via junket promoters. Casinos and junket operators have promised to return stolen funds still in their possession but some have gone to winning players. It is noted that about $17 million is missing. ‘The above case may result to the reinstatement of the Philippines to the blacklist by the Financial Action Task Force on Money Laundering. Attention was given to a weakness of the Philippine’s money laundering law after lawmakers in 2012 decided to exclude casinos from the roster of organizations required to report to the Anti-Money Laundering Council regarding suspicious transactions Funds looted from the Bank of Bangladesh reaching Manila casinos expose the gaps in the Philippines framework to combat money laundering. This incident also underscores how simple and potentially beneficial it would be for the nation’s casinos to get in line with intemational anti-money laundering standards. Further, the BIR can easily establish all possible sources of income. Ruling out the presence of fraud through access to bank records will be beneficial to the taxpayers if proven that fraud is non-existent as they will not have to undergo litigation processes. In the same way, it will not only expedite the investigation, but also the collection of back taxes that have been determined through the audit investigation. V. CONCLUSION/RECOMMENDATION Bank secrecy is always considered one of the main aspects of private banking. It has also been pinpointed to be responsible for one of the main instruments of underground economy, tax evasion and money laundering. 12 Lifting of the Philippine Bank Secrecy Law for Tax Fraud CasesNTRC Tax Research Journal Vol. XXVIIL4 July-August 2016 With the global call to end excessive protection benefiting dubious parties, it is inevitable that banking secrecy is set to end. The FATCA has received considerable international support because most foreign governments recognize how effective it has been in detecting and combating tax evasion. ‘The amendment of our Bank Secrecy Laws should be viewed positively as an opportunity for the Philippines to effectively combat both domestic and global tax evasion, money-laundering, and other financial crimes, foster harmonious and supportive international relations, and to finally comply with world standards on transparency. However, Filipinos should be assured that with the strict standards for confidentiality, the information gathered are secure and will only be used for the intended purpose. Lifting of the Philippine Bank Secrecy Law for Tax Fraud Cases 3]